AM Best Downgrades US Health Insurance Market Outlook to Negative

When Stability Shifts: AM Best Downgrades U.S. Health Insurance Market Outlook

If you thought health insurers might finally be catching a break, think again. AM Best has just downgraded its outlook for the U.S. health insurance market from Stable to Negative, citing mounting pressures across the board—from medical costs to government program strains.

A Perfect Storm of Cost Pressures

The shift stems from several converging challenges. Across the industry, insurers are seeing broad increases in medical expenditures. That means more spending on specialty drugs, more physician visits, higher hospital and ER utilization, and a spike in behavioral health claims. There’s also growing “coding intensity,” reflecting higher-acuity patient populations and more complex service profiles. (ReinsuranceNe.ws, AM Best News)

Jennifer Asamoah, AM Best’s senior financial analyst, explained it succinctly: “The trends appear to have accelerated in late 2024, with underwriting earnings dropping materially in the fourth quarter. While the industry entered 2025 with higher-than-expected medical and pharmacy utilization, the first quarter was also negatively impacted by elevated respiratory claims due to flu, COVID and pneumonia.” (AM Best News, ReinsuranceNe.ws)

Government Programs Feeling the Squeeze

Both Medicare Advantage and Medicaid are under strain—but for different reasons. In Medicare Advantage, utilization patterns and provider costs are climbing, while changes to CMS’s risk-adjustment model and lower Star Ratings are squeezing margins even further. (ReinsuranceNe.ws, AM Best News)

Medicaid is also in the hot seat. As the Public Health Emergency ended, many healthier participants—those who didn’t frequently use benefits or had alternative coverage—were disenrolled. Consequently, the remaining population now leans toward higher morbidity and greater utilization. Add to that regulatory changes from the recent “One Big Beautiful Bill”—which includes funding cuts, new eligibility or work requirements, and more frequent redeterminations—and the outlook looks even more daunting. (ReinsuranceNe.ws, AM Best News)

Commercial and Marketplace Segments Hit Hard, Too

Even the historically steady commercial group segment faltered in 2024—and that dip continued into 2025. On top of that, Insurers across ACA marketplaces are facing rising utilization and distressing risk pools, especially as many sicker individuals who were disenrolled from Medicaid have moved into these markets. (ReinsuranceNe.ws, AM Best News)

Another wrinkle: the widespread adoption of GLP-1 medications. While these therapies gained popularity for weight loss, coverage broadened in 2025 to include other indications—adding cost and complexity to pharmacy spend. (AM Best News, ReinsuranceNe.ws)

As Bridget Maehr, Director at AM Best, noted:

“Operating performance for the U.S. health insurance industry will continue to be pressured for the remainder of 2025 … While operating performance may show improvement in 2026, pressures … are likely to persist into 2027 as it may take several pricing cycles to fully address the issues facing the industry.” (AM Best News, ReinsuranceNe.ws)

Why It Matters—and What Lies Ahead

In a nutshell, the forces reshaping the U.S. health insurance market aren’t passing. From inflationary pressures to utilization surges in behavioral and respiratory claims, insurers face structural headwinds. Meanwhile, government-sponsored plans aren’t insulated from risk either—they’re increasingly becoming focal points of margin erosion.

Here’s where the industry could focus its energies:

• Pricing agility and underwriting discipline to reflect shifting utilization patterns.

• Investment in chronic and behavioral health management, to better control claims trends.

• Reassessing risk pool dynamics, particularly around ACA marketplace participants and Medicaid disenrollees.

• Strategic repositioning, recognizing that government-related volumes now bear higher acuity.

Quick Fact Snapshot

• Underwriting losses dropped materially in Q4 2024.

• Across all segments—from Medicare Advantage to the ACA marketplaces—utilization and cost trends remain elevated.

• Margins under pressure continue through 2025, with recovery likely stretching into 2027. (AM Best News)

In short: this downgrade isn’t a blip—it’s a flashing signal. For leaders in the insurer space, now is the time to revisit pricing, product mix, and portfolio strategy. Forward-thinking companies may find opportunity in managing risks, rather than simply reacting to them.